To Insure or Not to Insure? Reflections on the Limits of Insurability

SOCIAL REINSURANCE: A NEW APPROACH TO SUSTAINABLE COMMUNITY HEALTH FINANCING, Dror D.M., Preker A.S., eds., pp. 125-152, World Bank & ILO, 2002

28 Pages Posted: 18 Oct 2007

See all articles by Michel Vaté

Michel Vaté

University of Lyon 2; Institut Thomas More

David M. Dror

Micro Insurance Academy (MIA)

Abstract

How can social reinsurance sustain community health financing when governments cannot fund universal coverage? The answer to this question is the overriding focus of this book. Appropriate insurance is one option (Musgrove 1999, p. 55), but what kind of insurance is appropriate?

The realm of insurance is ever-changing. When new risks are identified-or as new forms of risk transfer are formulated for known risks-the question about the limits of insurability comes up again and again. In the ordinary framework of casualty and liability insurance, routine technical analyses usually suffice to determine whether or not a given risk is insurable. Such calculations are performed routinely before an insurer agrees to underwrite a risk or renew a contract.

But here the focus of debate is intrinsically different from the casualty and liability context. It is rather unusual because it concerns health costs, low-income countries, and microinsurance. The basic question is: Can insurance play any role at all in covering microinsurers' health risk and, if so, what is it? To answer this question, we draw on a set of basic concepts as well as modern problematic subjects from three parts of the literature: theory of insurance (Briys 1990; Ewald and Lorenzi 1998; Henriet and Rochet 1991; Outreville 1998), social protection and health care finance (Charpentier 2000; Cichon and others 1999), and health insurance in low-income countries (Atim 2000; Dror and Duru 2000; Fonteneau and Dror 2000; Gertler and Solon 2000; Meesen 2000). This chapter explores a method for establishing a coherent and simple-to-operate distinction between cost-generating health events that can be insured and those that cannot.

Health risk, as used here, designates any situation in which the health status of an individual-or group of individuals-is exposed to possible deterioration. When this risk occurs, expenses are incurred either from treatment to improve the health status or from compensation for its deterioration. We analyze several examples to separate insurable from uninsurable health events.

Human development is both a process and an end (World Bank 1993; UNDP 2000). This general affirmation also applies to the health risks of populations in low-income countries insofar as the related costs can both contribute to, and result from, such development. For this reason, health systems seek to improve the health of individuals (as measured by accepted indicators) and, at the same time, to adapt mechanisms to protect the overall development process. For example, insurance can provide protection against random poverty-generating events, but if similar results can be achieved by pooling resources, no matter how small, by alternative mechanisms (such as savings and prevention), they should not be ruled out. A combination of insurance and prevention can be just as effective in poor countries as it has been in rich countries. Finally, we are talking about microinsurance units, that is, community-funded health insurance schemes that are neither commercial nor national (Dror and Jacquier 1999). These microinsurers do not have access to the resources and financial techniques of commercial insurance and are not constrained by general policy considerations of governmental insurance. For these reasons-and no doubt more than with other types of insurance-the viability of microinsurance depends to a large extent on a coherent distinction between insurable and uninsurable risks.

Keywords: micro health insurance, social insurance, insurance for the poor, community based health insurance, health financing

Suggested Citation

Vaté, Michel and Vaté, Michel and Dror, David M., To Insure or Not to Insure? Reflections on the Limits of Insurability. SOCIAL REINSURANCE: A NEW APPROACH TO SUSTAINABLE COMMUNITY HEALTH FINANCING, Dror D.M., Preker A.S., eds., pp. 125-152, World Bank & ILO, 2002, Available at SSRN: https://ssrn.com/abstract=1021669

Michel Vaté

University of Lyon 2 ( email )

Departement IEP
14 avenue Berthelot
Lyon, 69007
France

Institut Thomas More ( email )

49 bd de Courcelles
Paris, 75008
France

David M. Dror (Contact Author)

Micro Insurance Academy (MIA) ( email )

New Delhi, NCR
India
+41 78 790 6789 (Phone)

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